Vancouver, Toronto and 3 other Canadian property markets still in 'red zone': CMHC

One of the major changes from the last quarter has been in Edmonton and Calgary. Both cities still score a "yellow" overall which is a moderate degree of market vulnerability but are in the red when it comes to overbuilding

Five key Canadian markets continue to have what Canada Mortgage and Housing Corp. calls a “high degree of market vulnerability,” according to a report out Thursday which also predicts a slowdown in construction.

CMHC, the Crown corporation which advises the government on housing policy, says Victoria, Vancouver, Saskatoon, Hamilton and Toronto all remain in what it labels the red zone for overall vulnerability based on categories that included overheating, price acceleration, overvaluation and overbuilding.

“It’s an early indication of imbalances in the housing market,” said Bob Dugan, chief economist with CMHC, about the red label which was also given to the entire country. “Not a whole lot has changed from the last quarter. For Canada, there is a degree of vulnerability.”

Dugan said one of the major changes from the last quarter has been in Edmonton and Calgary. Both cities still score a “yellow” overall which is a moderate degree of market vulnerability but are in the red when it comes to overbuilding.

“There is rising inventory of completed and unsold homes. Vacancy rates in both (Calgary and Edmonton) have been signalling overbuilding for several quarters,” said Dugan.

CMHC’s valuation is part of its quarterly Housing Market Assessment, something the Crown corporation calls an early warning system, alerting Canadians to areas of concern developing in housing markets so that they may take action in a way that promotes market stability.

The Crown corporation also published its housing market outlook for the fall of 2017 Thursday and is now predicting housing starts will begin to decline by 2018. Existing homes sales will decline year this after a record 535,000 transactions through the Multiple Listing Service system in 2016.

New construction in 2017 will top 200,000 in 2017, a jump from a year earlier with a range of 206,300 to 214,900 predicted for the year. By 2018, the range for starts is forecast to drop to 192,200 to 203,000 but stabilize at 192,300 to 203,800 in 2019.

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“Looking ahead, high house prices, particularly for single-family homes, and rising mortgage rates will bring about some cooling in market activity,” said Dugan.

CMHC said existing home prices peaked at an average of $536,000 for the country earlier this year but for all of 2017, the organization says there will be an year over year increase in the range of $493,900 to $511,300. By next year, the range of the average sale price of an existing home across the country will be $491,900 to $512,100 and then $499,400 to $524,500 in 2019.

“We do expect prices increasing but at a slower pace,” said Dugan, noting average prices rose in 2016 largely based on more sales in expensive markets and home types like single detached homes having strong activity. “It pushed up the average price.”

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